The Disadvantage of Membership: How Joining the GATT/WTO Undermines GSP

Abstract

AbstractScholars and policymakers have long debated whether the Generalized System of Preferences (GSP) enhances development through increased trade – i.e., whether the program is effective as a form of ‘trade-as-aid’. We argue that, by itself, GSP increases poor-country exports, but that when recipients join the General Agreement on Tariffs and Trade (GATT) or its successor, the World Trade Organization (WTO), they realizefewerimports, and less gains in total trade, than GSP recipients that do not join the multilateral trading system. The logic is that GATT/WTO membership makes GSP more predictable by making it non-discriminatory, in the sense that exporters in recipient countries are less vulnerable to the program's ad hoc conditionality. This leads these exporters to lobby less against domestic protectionism, yielding higher trade barriers at home, and thus fewer imports. We test this hypothesis using a gravity model of trade, and data on all GSP programs, and find strong support for the argument that the GATT/WTO's interaction with GSP undermines trade.